The CIRC puts pressure on insurers to improve internal controls.
China's market regulator the China Insurance Regulatory Commission (CIRC) last month began a review of the nation's domestic insurance companies in a bid to encourage healthy growth in the industry.
The CIRC said it would undertake a three-year initiative involving spot checks on insurers in order to learn more about their finances and ensure they have adequate internal controls and risk-prevention abilities.
Initially, the review will involve five teams investigating 20 insurers over the next year, according to a CIRC press statement. These will include eight property insurers, seven life insurers and five insurance asset management companies, said CIRC.
Among the firms slated for inspection are China's largest non-life insurance company, PICC Property and Casualty Company, its largest commercial insurance company, China Life Insurance Company, Ping An and China Pacific Insurance Corporation.
Property insurance inspections will focus on large commercial projects and irrational price competition of car insurance, while life insurance will concentrate on illegal fees paid for agent business, intermediary insurance and commercial bribery. The investigations will look at companies' decision-making processes and the CIRC warned that stiff punishment would be handed out if any irregularities or wrongful payments were discovered.International insurers and reinsurers operating in China generally saw the review as constructive to the development of the market.
Eileen Lim, spokeswoman for Swiss Re in Asia commented, “On-site inspections are quite a common practice in many jurisdictions. For example, the Insurance Commissioner in the Philippines recently announced that it is going to conduct on-site inspections of insurers this year. We view these moves as positive, because they will help strengthen implementation of regulations and lead to better governance overall, and will be beneficial to the very large and rapidly developing China insurance market.”
China's insurance industry has grown by an average of more than 30% in the last 20 years. CIRC chairman Wu Dingfu said the regulator would do more to ensure wider industry development as China faces up to the immediate prospect of unrestricted foreign competition.
He told a national conference of insurance regulators in April that the commission would use a combination of economic, legal and administrative measures to enhance market management and prevent major fluctuations in revenues.